The world’s sovereign wealth funds have seen their coffers swell to $3.98 trillion, an increase of 11% over the last 12 months, according to new data from the Preqin research firm.
The 2011 Preqin Sovereign Wealth Fund Review says the percentage of SWFs investing in alternatives has also risen over 2010, pointing out that SWFs, with their longer-term horizons and fewer liabilities than other investors, are important investors in alternative assets.
Preqin’s research shows that while the percentage of SWFs investing in hedge funds remained static at about 36% compared to 2010, the percentage investing in infrastructure rose from 47% in 2010 to 61% at the beginning of 2011.
The report also notes increased SWF investment in real estate (56% of funds in 2011 compared to 51% in 2010) and private equity (55% in 2010 compared to 59% in 2011).
Some SWFs were subject to capital withdrawals—Russia’s Reserve Fund was used to balance the federal budget over the course of 2010. Its total assets now stand at $25.4 billion compared to $60.5 billion at the start of 2010.
Preqin expects the number of SWFs investing in alternatives to continue to increase throughout 2011 as they pursue higher returns and seek increased diversity.
“Following global economic stabilization, many sovereign wealth funds that had delayed plans to diversify their holdings as a result of the economic downturn have now resumed these plans,” said Sam Meakin, managing editor of the report. “Therefore we expect the proportion of SWFs moving into the various alternative asset classes, as well as the amount invested by SWFs in alternatives, to continue to increase in the coming year. The significant collective assets under management of SWFs means that they represent an important potential source of capital for fund managers across all asset classes.”